Factors that will determine the health of the semiconductor industry next year.
Generally, 2015 has been a challenging year in the foundry business. For one thing, the foundry industry will register modest growth in 2015. In addition, the foundry customer base is consolidating. And on the leading edge, foundries took longer than expected to ramp up their 16nm/14nm finFET processes.
So, after an eventful year in 2015, what’s in store for the foundry business in 2016? It’s hard to predict the future, but several trends are expected to emerge:
• The foundry business will continue to grow faster than the overall IC industry in 2016. And foundries with exposure to the “Apple supply chain” will likely fair better.
• Foundry vendors will expand their 28nm and/or 16nm/14nm processes in 2016, but companies will face price pressures in both markets.
• Foundries will accelerate their efforts at 10nm and 7nm, but fewer customers can play at the leading edge. In addition, there is a debate brewing whether 10nm or 7nm will be the bigger node.
• Demand for specialty processes, such as analog, power management and RF, will remain strong in 2016.
All told, the foundry business is expected to be a mixed bag in 2016. “Overall, in the foundry business, 2016 will outperform 2015,” said Samuel Wang, an analyst with Gartner. “2016 will be the year when you will see 16nm/14nm in full-blown production by many fabless companies. But price competition will be intense for 28nm and 16nm/14nm.”
Others see a similar outlook. “Generally speaking, across the board, there is a little bit more bullishness about 2016,” said David Jensen, vice president of strategic marketing at GlobalFoundries. “There will be a continued adoption of new products coming out on 16nm/14nm. So, the leading-edge will track better than the overall market in general. In addition, the RF content continues to expand in handsets. Plus, there are a lot of applications that are growing in automotive and other markets.”
Still, there are also some warning signs. The PC market continues to decline, while the smartphone business is maturing. In addition, China’s economy continues to slow. “The GDP outlook is still good,” Jensen said. “Obviously, there are a number of geopolitical factors that could sway any of these cycles.”
To get a grasp on the trends for the foundry business in 2016, Semiconductor Engineering has taken a look at several markets, such as the leading-edge, 28nm and specialty processes.
In 2014, the IC market grew 7.9%, according to Gartner. Based on preliminary figures, the worldwide semiconductor industry is projected to reach $338 billion in 2015, down 0.8% from 2014, according to Gartner, who blames the figures on lackluster growth for smartphones and bloating inventories.
Citing a slight rebound in smartphones, and a slower decline in PCs, the IC market is expected to reach $344 billion in 2016, up 1.9% over 2015, according to Gartner. “We are hoping for a soft recovery in the first quarter of 2016, with a stronger recovery in the second quarter,” Gartner’s Wang said.
In 2015, the worldwide foundry market will grow 5%, according to Gartner. Amid ongoing demand for leading-edge processes, the foundry business is expected to grow from 5% to 6% in 2016, Wang said.
According to projections from GlobalFoundries, the IC market will fall by more than 1% in 2015, but the foundry business will grow by 6% to 6.5%. “Foundry tracks a little better than semis,” GlobalFoundries’ Jensen said. “So we see foundry growth anywhere from the 5ish to 7ish percent for 2016.”
On the capital spending front, the foundry sector is a mixed picture. “We believe foundry will experience modest growth next year, primarily characterized by some 28nm investment, some trailing edge, some capacity additions for 14nm and 16nm, and the beginning of 10nm investment,” said Satya Kumar, vice president of corporate marketing at Lam Research.
Others agree. “Logic/foundry investments are also rebounding from a low base,” said Takuji Tada, senior manager of corporate strategy and marketing at KLA-Tencor. “We do see 10nm investments starting in 2016, at a volume typical for the first year of ramp.”
Meanwhile, as before, the smartphone is a big driver for foundry growth. In total, the smartphone market grew by 25.2% in 2014, but the business is slowing and projected to grow by 9% in 2015 and only 4.5% in 2016, according to Canaccord Genuity.
The good news is that the RF content has grown to $12 to $13 for a 4G smartphone, up from less than a dollar for an older-generation 2G cellphone, GlobalFoundries’ Jensen said.
In any case, chipmakers, and their foundry partners, with exposure to Apple continue to thrive. “Whoever is in Apple’s supply chain will do well,” Gartner’s Wang said. “Those who are not will face challenges.”
Perhaps a bigger challenge is becoming more apparent—the foundry customer base is consolidating amid a frenetic wave of acquisitions in the market. In the first half of 2015, the acquisition agreements in the IC industry had a combined total value of $72.6 billion, which was nearly six times the annual average for merger deals struck during the previous five years, according to IC Insights.
To be sure, the consolidation in the IC market translates into fewer foundry customers over the long haul. And if that trend continues at the same pace, the foundry industry could also see a new round of acquisition activity in 2016.
On one front, there might be some consolidation at the leading-edge foundry business. On another front, foundry vendors are also looking to acquire new 200mm capacity. In fact, there is huge demand for 200mm capacity amid a boom in the wireless, power management and other segments. “There will be mergers and acquisitions in the foundry business,” Gartner’s Wang said. “If 8-inch continues to be in high demand over the next year, I expect to see more acquisitions in this area.”
At the leading edge, meanwhile, several foundries reached a major milestone in 2015. For example, GlobalFoundries, Samsung and TSMC made the transition from traditional planar processes at 28nm and/or 20nm to next-generation finFET transistor technologies at 16nm/14nm. Meanwhile, Intel is ramping up its second-generation finFET technology at 14nm.
It hasn’t been an easy transition for all companies, however. Bringing up the yields for 16nm/14nm has been more difficult than previously thought.
In 2016, though, it could be a buyers’ market for 16nm/14nm wafers. Foundries will not only improve their yields, but they will also expand their 16nm/14nm production in 2016.
This, in turn, could create an excess supply in the 16nm/14nm market. “GlobalFoundries, Samsung and TSMC will become very aggressive in the market,” Gartner’s Wang said. “So, there will be continued price competition in this space.”
While foundries expand their 16nm/14nm processes, Intel, Samsung and TSMC are also separately developing 10nm finFET processes. Foundries hope to ramp up 10nm starting at the end of 2016.
“Samsung and TSMC are pushing 10nm,” Gartner’s Wang said. “But it also looks like there is a difference of opinion between TSMC and Samsung regarding the popularity of 10nm. TSMC more or less has said that 10nm may not be a super successful node, because 10nm offers a maximum speed improvement of 25% over 16nm/14nm. So the speed improvement is not significant compared to 16nm/14nm. TSMC says 7nm can be a more popular node. Samsung has a different opinion. They believe 10nm will be as successful as 14nm. Samsung will also do 7nm.”
So in 2016, leading-edge foundry customers will have the option to design chips around 16nm/14nm, 10nm, or both. Just how will this all play out?
16nm/14nm, according to some, will remain a viable technology for some time. “16nm/14nm will be a long running node,” said Jack Sun, vice president of R&D and chief technology officer at TSMC.
Over time, though, chipmakers will likely have IC designs based on both 16nm/14nm and 10nm. “They will co-exist for a long time to come,” said Hong Hao, senior vice president of the foundry business at Samsung Semiconductor.
But still, given the soaring costs for IC design and manufacturing, just how many foundry customers can afford to design 10nm and/or 7nm chips? And for that matter, what does this all mean for Moore’s Law?
“From a technology standpoint, Moore’s Law will continue,” Gartner’s Wang said. “But from an economic standpoint, fewer and fewer customers can afford it. At 14nm, for example, we are looking at $200 million in terms of design costs. Unless you are sure about the return-on-investment, and the number of units you can sell, many companies don’t have the financial muscle to design such a technology anymore.”
The fate of Moore’s Law may depend on at least one technology—extreme ultraviolet (EUV) lithography. At 7nm, chipmakers hope to insert EUV, which could simplify and reduce the cost of patterning. This depends on the status of the power supply, resists, and the EUV mask infrastructure. “All of these things will eventually need to have production-level features that support EUV,” said Aki Fujimura, chief executive of D2S.
Leading-edge planar outlook
Despite the talk about finFETs, the leading-edge planar CMOS market is still alive and well. In fact, 28nm will remain a sweet spot for a range of applications. In total, the 28nm node alone is expected to generate a whopping $10 billion in sales for the foundry industry this year, according to Gartner.
This has implications that reach far further afield than just the foundry business, too. Foundries typically are a bellwether of activity in the industry, reflecting the health of EDA vendors, chipmakers and materials companies. While all of those generate revenues at older nodes, profits are still highest at the most advanced nodes. That’s what drives sales of expensive emulation systems and the most advanced design tools, as well as the most licensing seats, and it’s what drives most of the advanced R&D work that propels the industry forward. Not everything is on exactly the same cycle, of course, and blips caused by industry consolidation or geopolitical events could be disruptive in the short term, but in general the balance remains the same.
“Semiconductor R&D as a percent of revenue has remained constant at 13% to 14% over the past 32 years,” said Wally Rhines, chairman and CEO of Mentor Graphics. “You can reduce it in the short term, but over time some of your competitors will make some enhancements and take market away from you. And you can reduce R&D and maintain revenue, but it really takes 14% to maintain the business and grow. Much below that and it becomes a risk.”
Rhines noted that EDA’s slice of the overall market has been a consistent 2%, which is why the big EDA companies have been diversifying into software, IP and emulation that can be used far beyond just the chip.
The revenue slice doesn’t work out evenly for everyone, either. The 28nm market is becoming more crowded, which, in turn, will likely cause price pressure in the arena, according to Wang.
For some time, GlobalFoundries, Samsung and TSMC have offered 28nm bulk CMOS processes. UMC and SMIC have recently entered the 28nm fray.
Then, there is a battle within a battle. For example, Samsung also offers a 28nm FD-SOI technology, which competes with 28nm bulk. And not to be outdone, GlobalFoundries has recently rolled out a 22nm FD-SOI technology.
In many respects, FD-SOI and 16nm/14nm finFETs are complementary technologies. “Both have different cost points,” said Kelvin Low, senior director of foundry marketing at Samsung Semiconductor. “14nm finFETs were created for more performance, lower power and more scaling. FD-SOI consists of planar transistors that have very low-power attributes for Internet of Things-type applications.”
Specialty process outlook
In 2016, the specialty foundry business is expected to be robust. One area to watch is RF SOI, which is used to make antenna switches, tuners and other RF components in smartphones and tablets.
But for some time, IBM, the world’s leading supplier of RF SOI, has been sold out of RF SOI foundry capacity. This, in turn, opened the door for other foundries, such as TowerJazz, STMicroelectronics and others, to supply RF SOI to the mobile market.
Last year, GlobalFoundries acquired IBM’s chip unit. Now, as part of GlobalFoundries, the combined GlobalFoundries-IBM entity can expand its capacity in RF SOI as well as other processes. In fact, GlobalFoundries began offering RF SOI capacity within its 300mm fab in Singapore.
“RF SOI continues to see strong growth,” said Marco Racanelli, senior vice president and general manager of the RF/High Performance Analog and Power Business Group at TowerJazz. “Rapid transition from 3G to 4G, combined with increasing complexities in next-generation smartphones is driving higher RF silicon content. This will fuel continued growth in the RF front-end segment.”
Other markets look bright, as well. “We see good opportunities for growth in the specialty foundry space in 2016 across the markets we serve in wireless, power management, and sensors,” Racanelli said. “We expect the demand for power management ICs to remain strong looking into 2016, driven mostly by growth in consumer electronics and the automotive industry. Increasing hybrid and all-electric vehicles are driving growth in semiconductor content per automobile sold today. We see strong demand for power management ICs in the wireless, portable and wearables markets as well.”
And finally, what will the Internet of Things bring to the party? “The trend of ‘wireless everything’ is helping bring new content to our wireless and sensors areas,” he said. “More recent concerns over security should also provide further opportunities for our CMOS image sensor business.”